Selling a licence IV without the business (fonds de commerce)

The sale of a licence IV (full on-premises alcohol licence, licence 4) without the business (fonds de commerce) raises many practical and legal questions. Unlike a standard transfer of an establishment including all its tangible and intangible elements, this transaction requires a specific approach that complies with the strict regulatory framework governing drinking establishments. This article guides you through all the stages of this particular transaction, from the conditions of validity to the essential administrative formalities.

Understanding the licence IV

Definition and legal nature

The licence IV is the administrative authorisation permitting the retail sale of all categories of alcoholic beverages for consumption on the premises. It is not attached to the person of its holder: it may be transferred together with the business or on its own, the change of operator (mutation), the relocation within the same municipality (translation) or the transfer of the establishment having to be declared or authorised under the conditions laid down in the French Public Health Code (Articles L. 3332-4 and L. 3332-11).

Contrary to a widespread belief, the licence IV can be sold on its own, without the rest of the business. Since the opening of a new 4th-category establishment is prohibited except in the cases provided for by law (Article L. 3332-2 of the French Public Health Code), buying an existing licence is in practice the way to operate a fourth-category drinking establishment. The transfer is subject to two limits: a 3rd- or 4th-category establishment that has ceased to exist for more than five years is deemed to have been abolished and can no longer be transferred (Article L. 3333-1), and the transfer of the establishment to another municipality is subject to the authorisation of the prefect (Article L. 3332-11).

The attached rights

Holding a licence IV confers several essential prerogatives on its holder:

• The right to sell all categories of alcoholic beverages
• The operation of a drinking establishment for consumption on the premises
• The possibility of transferring this authorisation under strict conditions
• The commercial use of this authorisation within a defined geographical area

Take the example of Marc, who has owned a bar-restaurant in Lyon city centre for 15 years. His licence IV not only allows him to serve beer, wine and spirits, but also adds value to his establishment in the event of a sale. This licence, which may be transferred together with the business or separately, is a decisive element of the value of his business.

Why sell without the business

Common reasons

Several practical situations may lead an operator to consider a sale of a licence IV without the business:

• Cessation of activity while wishing to retain the other elements of the business
• Commercial restructuring requiring the drinking establishment activity to be abandoned
• Financial difficulties requiring the assets to be realised separately
• Change of commercial direction towards an activity that does not require a licence

Legal constraints

The licence IV is not a freely transferable authorisation: its stand-alone transfer must comply with the rules on change of operator (mutation), relocation (translation) and transfer laid down in the French Public Health Code. It is an intangible element of the drinking establishment business, but it may be detached from it and transferred on its own. The legal nature of the business and the checks to carry out before acquiring it are set out in our article on buying a business.

Concrete case: Sophie runs a restaurant with a terrace in a tourist area. Facing financial difficulties, she wishes to sell only her licence IV while keeping her kitchen equipment and her restaurant clientele. This stand-alone transfer is possible; selling alcoholic beverages in her restaurant will then require another appropriate licence, such as the restaurant licence.

Terms of the stand-alone transfer of the licence

The deed of transfer

The transfer of the licence alone is recorded in a written deed specifying the category of the licence, the address of the establishment to which it is attached, the price and the conditions precedent, in particular obtaining the transfer authorisation where the buyer intends to operate in another municipality.

Change of operator, relocation and transfer

A change of owner or manager of the establishment constitutes a change of operator (mutation), which must be declared in writing at least fifteen days in advance to the town hall or, in Paris, to the police prefecture (préfecture de police) (Articles L. 3332-3 and L. 3332-4 of the French Public Health Code). The declaration includes the operating permit (permis d'exploitation) certifying that the declarant has completed the specific training provided for in Article L. 3332-1-1.

The relocation of the establishment within the same municipality (translation) is declared under the same conditions. The transfer of an operating establishment to another municipality in the département is subject to the authorisation of the prefect, after mandatory consultation of the mayors of both municipalities; where a municipality has only one 4th-category establishment, it may be transferred only with the favourable opinion of the mayor. A transfer to an adjoining département is possible with the authorisation of the prefect of the receiving département (Article L. 3332-11).

The licence must be active: a 3rd- or 4th-category establishment that has ceased to exist for more than five years is deemed to have been abolished and can no longer be transferred; in the event of compulsory liquidation, this period is extended until the close of the liquidation proceedings, and it is suspended during a temporary closure ordered by the judicial or administrative authority (Article L. 3333-1).

Administrative formalities

Declarations and authorisations

Any transfer of a licence IV gives rise to a written declaration, at least fifteen days in advance, to the town hall or, in Paris, to the police prefecture (préfecture de police); only the transfer of the establishment to another municipality requires the authorisation of the prefect.

Content of the declaration (Article L. 3332-3 of the French Public Health Code):

• Surname, first names, place of birth, occupation and address of the declarant
• Location of the establishment
• Capacity in which the declarant manages the establishment and identity of the owner, where applicable
• Category of the establishment
• Operating permit (permis d'exploitation) certifying completion of the training provided for in Article L. 3332-1-1

Formalities at the Trade and Companies Register

Where the transfer of the licence alters the business carried on by the seller or by the transferee, each of them completes the corresponding amendment or registration formalities with the Trade and Companies Register (RCS).

Tax and social security declarations

The sale of a licence IV gives rise to specific reporting obligations depending on the legal structure of the operator.

For individuals:

• Declaration of the business capital gain
• VAT adjustment on the elements transferred
• Declaration of partial cessation of activity

For legal entities:

• Accounting for the disposal of an intangible fixed asset
• Tax declaration of the capital gain
• Informing the partners in the event of a substantial change to the corporate purpose

Valuation and sale price

Valuation criteria

The valuation of a licence IV is based on several decisive factors that directly affect its market value. The valuation methods applicable to the business as a whole, and the disputes they give rise to, are presented in our article on the valuation of a business.

Main assessment factors:

• Geographical location and commercial potential of the area
• Scarcity of licences available in the area
• Historical turnover of the establishment
• Profitability generated by the drinking establishment activity
• Local planning and regulatory constraints

Valuation methods

Valuation professionals generally use three complementary approaches:

Comparison method: analysis of recent licence IV transactions in similar settings, adjusted for local specificities.

Capitalisation method: valuation based on the earning capacity of the licence, applying a capitalisation rate according to the risk of the sector.

Replacement cost method: assessment of the cost and time needed to obtain an equivalent authorisation in the same area.

Negotiation and contractual clauses

The drafting of the preliminary sale agreement (compromis de vente) must include clauses specific to the particular nature of this transaction.

Essential conditions precedent:

• Obtaining the administrative authorisations for the transferee
• Verification of the validity and transferability of the licence
• Confirmation that no administrative proceedings are pending
• Confirmation of the buyer's financing

Seller's warranties:

• Warranty of quiet enjoyment of the licence
• Warranty of no administrative litigation
• Warranty of regulatory compliance of the establishment
• Warranty of validity of the related authorisations

Concrete case: Catherine negotiates the sale of her licence IV to David for €95,000. The preliminary agreement provides for a condition precedent of 45 days for obtaining the prefectural authorisation, an 18-month warranty against hidden administrative defects, and payment in three instalments secured by bank guarantees.

Risks and precautions

Risks for the seller

The seller of a licence IV remains exposed to several risks even after completion of the sale.

Residual liabilities:

• Joint liability with the buyer for undeclared prior tax and social security debts
• Liability in the event of a hidden defect in the administrative authorisations
• Warranty obligations in the event of administrative withdrawal of the licence for prior events
• Risk of claims by creditors not informed of the transfer

Risks for the buyer

The buyer must also guard against risks specific to this type of acquisition.

Essential preliminary checks:

• Verification of the validity and regularity of the licence
• Verification that no administrative proceedings are pending
• Audit of the establishment's compliance with applicable standards
• Analysis of the conditions for renewal of the authorisation

Take the example of Thomas, who acquires a licence IV for €75,000 without sufficiently checking the administrative file. After signing, he discovers that the establishment is subject to a formal notice procedure for non-compliance with accessibility standards, requiring €25,000 of additional unbudgeted works.

Recommended precautions

The legal security of the transaction requires reinforced contractual precautions.

In-depth due diligence:

• Full legal audit of the authorisations and their history
• Technical inspection of the establishment by an expert
• Accounting verification of economic performance
• Analysis of the competitive and regulatory environment

Protective clauses:

• Warranty against eviction with lump-sum compensation
• Automatic termination clause in the event of administrative refusal
• Escrow of the price until final validation of the transfer
• Appropriate professional liability insurance

Tax aspects

Tax regime of the transfer

The sale of a licence IV without the business has specific tax consequences depending on the status of the seller and the terms of the transaction.

For sole traders: The business capital gain falls under the regime for capital gains on fixed assets. The holding-period allowance under Article 151 septies B of the French General Tax Code applies only to real property and to shares in companies whose assets are predominantly real property; it does not apply to the licence. The exemption regimes for business capital gains must be examined on a case-by-case basis.

Calculation of the capital gain:

• Sale price less selling costs
• Less: acquisition price or contribution value plus acquisition costs
• Less: depreciation charged, where applicable

VAT and registration duties

The transaction may be subject to VAT depending on the operating conditions and the status of the parties, with the possibility of opting for taxation.

Registration duties: the rate applicable to the stand-alone transfer of a licence, in particular whether the progressive scale for transfers of businesses or clienteles under Article 719 of the French General Tax Code applies, must be checked when the deed is drafted.

FAQ: frequently asked questions

Can I sell my licence IV alone, without the rest?

Yes, the licence IV may be transferred on its own, without the rest of the business. The change of operator must be declared at least fifteen days in advance (Article L. 3332-4 of the French Public Health Code), and the transfer of the establishment to another municipality requires the authorisation of the prefect (Article L. 3332-11). The licence can no longer be transferred if the establishment has ceased to exist for more than five years (Article L. 3333-1).

How much is a licence IV worth?

The value varies considerably depending on location, the local scarcity of licences and the possibilities of transfer. It is assessed in the light of recent transactions concluded in the same area.

How long does it take to obtain the authorisation?

The change of operator must be declared at least fifteen days in advance (Article L. 3332-4 of the French Public Health Code). The transfer of the establishment to another municipality also requires the prefect's authorisation, the processing time for which varies from one prefecture to another.

Can I finance the purchase of a licence IV?

Yes, the acquisition of a licence IV may be financed by a bank loan, the terms of which (personal contribution, guarantees, financing plan) are set by each lender.

What happens if my transfer application is refused?

A refusal by the prefecture automatically cancels the sale if an appropriate condition precedent was provided for. The buyer recovers the sums paid and may claim damages if the seller breached its duty to inform.

Do I have to inform my creditors?

Where the licence is transferred together with the business, the sale is published and creditors have 10 days from the last publication to lodge an opposition to the payment of the price (Articles L. 141-12 and L. 141-14 of the French Commercial Code). Where the licence is transferred on its own, whether this publication regime applies must be checked when the deed is drafted. Legal publication, creditors' right of opposition and the handling of the seller's liabilities are dealt with in our article on the mistakes to avoid when selling a business.

How can I avoid pitfalls when buying?

Carry out a full audit: administrative validity of the licence, compliance of the premises, absence of litigation, verification of the declared turnover. Require extensive contractual warranties and seek professional assistance.

Can a licence IV lose its value?

Several risks exist: changes to local regulations, increased competition, unfavourable changes in the neighbourhood. However, the growing scarcity of licence IVs generally maintains their value over the long term.

Useful resources and assistance

The sale of a licence IV without the business is permitted, but it must comply with the regulatory framework governing drinking establishments: declaration of the change of operator, authorisation for a transfer outside the municipality, and absence of lapse of the licence.

Key points to remember:

• The licence IV may be transferred on its own, subject to the declaration of the change of operator and, in the event of a transfer to another municipality, to the prefect's authorisation
• The administrative formalities and prefectural authorisations are critical stages of the process
• The valuation must take into account local specificities and the regulatory constraints of the sector
• The legal and tax risks call for reinforced contractual precautions

The complexity of these transactions and their financial stakes justify the involvement of a legal professional, whether you are the seller or the buyer.

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